Material Changes in Risk: Causal Connection to Loss Not Required

The Supreme Court of Canada recently denied leave to appeal in an insurance coverage dispute. A building on the plaintiffs’ property was damaged by fire. The plaintiffs’ insurer denied a claim under a homeowner’s policy based on the plaintiffs’ failure to notify of a material change of risk, in particular, the existence of a licensed marijuana grow operation. The trial judge dismissed the plaintiffs’ action.

One of the issues on appeal was whether a material change in risk needs to be causally related to the loss in order for an insurer to deny coverage. The plaintiffs argued that, since the fire was not caused by the grow operation, there should be coverage.

The British Columbia Court of Appeal, in Schellenberg v. Wawanesa Mutual Insurance Company, 2020 BCCA 22, stated that the applicable authorities are clearly contrary to this argument. The Court of Appeal referred to the Supreme Court of Canada’s decision in Marche v. Halifax Insurance Co., 2005 SCC 6, wherein the Court stated that a causal connection between a breach of condition and the cause of the loss is not required.

Therefore, insureds must report all material changes in risk to their insurers, or else they face a denial of coverage for all claims, regardless of whether the material change in risk is related to the loss.